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QUERY DESK

This is a limited access to the Query Desk, where we share some of the Queries we have answered. These are not recommendations, but a casual chat between a client and his advisor.

Client

11, Jun 17

Query

Subject: SP Apparels

Hi Amit,

Lots of thanks for identifying good stories with momentum and anchoring us to hold the stocks we are buying.

SP Apparels appears to be a great story in its infancy. Maybe Kitex in the making. Can u please give your views.

  1. Fourth largest player in the world Children’s wear after Gimmel (China), Wingloo(Singapore), and Kitex(India)
  2. Clients include Tesco, George ASDA, Primark, Mother care and Dunes
  3. SPAL’s realisation is Rs.118 per piece per garment as compared to Rs.45/piece for Kitex
  4. Has got two divisions – garments (for manufacturing and export) and Retail for manufacture and marketing under Crocodile brand) (currently 9% of the total revenues)
  5. Retail division making losses expected to turn around this FY
  6. Promote is holding 60%, Ashish kacholia - holding 4.4% (increased from 2.43% in Sep 2016 to 4.47% in March 2017. Goldman Sachs holding 5.32 and DSP Black Rock Microcap fund – 3.97%
  7. With the Proceeds of IPO in FY 16 reduced the DER to 0.4. Expected FY19 EPS - 38.9, PE 10.4, EV/EBITDA of 5.3, ROE - 19.5% and ROCE of 20.8%.
  8. Established relationships with top 2 grocery retailers like ASDA, TESCO and others is a moat as manufacture of Children’s clothing is complex and is  a high entry barrier business.
  9. The Company is going for backward integration with own funds for expansion of sewing, knitting and dyeing capacity  which is expected to improve OPMs significantly.
  10. Kitex’s margins are  35% whereas SPAL’s are at 16%, With the additional capacity and debottlenecking there is significant room for margin expansion.
  11. Hedges 80% of the its forex exposure on getting the orders (addresses your concern of export businesses)
  12. Global Children’s wear market is expected to reach USD 300 billion by 2019 at a CAGR of 6%

Admin Reply

HI Sir, 
Thank You for an Amazing Write up. 
You have already written a lot would just like add 2-3 More points

1) The Company did Profit of about 62 Crores in FY 2017, It will grow revenues at 15-17% going forward but profits are expected to Increase at 35%+ levels for next 2-3 years, Expect them to do 150 crores of PAT by FY 2020

2)  My understanding is that the Company will trade at premium valuations(Considering its an Textile) of 15x 2020 i.e. about 2250 Crores of Market Cap conservatively. The Current Market Cap of the Company is 1150 Crores and is definately a doubler in next 3 years according to me

3) Biggest Risk- Client Concentration - They have only 4 clients now, may go to 6 clients. Even if there is one loss of client the game become very difficult for the same. The retail business in UK are facing major problems of thier own and stiff competition from online players like CLUB FACTORY (Orders come from China, not India).
 

Client

19, May 17

Query

Subject: max india

Max india which houses: 1. max hospitals (46% will now increase to 50% - also pormoters buying at cmp). Revenues are increasing at 25% in the past and expected to be in this range for many years to come. 2500 bed capacity will increase to 5000 in next 4-5 years. also 50%+ revenues comes from super speciality care which means more valuation per bed. medanta deal happened at 3+ crore per bed. Also further expansion will be in nature of brownfield so capex will be less.

2. max bupa : 51% stake. GWP continously up by 25% in past and is expected to be between 20-25% for many years to come. 5400+ branches.

3. antara: launch is nearby. senior residents society. 

4. pathology business which hitherto was b2b will now be b2c as well. mgt. has some aggresssive plans to expand it in delhi,ncr region

Business is available at 4000 cr market cap where growth visibility is strong (25%+) for many years coupled with increasing middle class and increasing peneteration of mediclaim business. Also mgt. adds icing on the cake. Your valuable views regarding the same. I have added it as part of core portfolio for last couple of months.

Admin Reply

Hi Sir,

There were 2 Queries on Max India and i am answering it here.

Max India is a part of stallions top 20, now i am scared to write this because in history whenever i disclose the stock somehow runs up without giving me a chance of buying it. 

I am a big fan of analjit and he has the capability to be the next piramal. He understands valuations and how to build value. Since you have already given a brief Write up about it, for the understanding of our clients i will explain the valuation
Max India has a Market Cap of 4000 Crores plus 300 crores of warrents issued i.e. about 4300.

1) Hospital Business - Max India lately has acquired 3.75% Stake of IFC in Max Hospital business for 211 crores valuing the hospital business for  5600 crores. Max India's Stake in Hospital Business will rise to 50%, i.e. valuation of 2800 crores.

2) Max Bupa - 23% Stake was sold for 206 in Max-Bupa general insurance in 2016 valuing the total company at 895 Crores, i.e. now Max India has 51% stake in it and you can value it at 450 crores.

So Now we know 2800+450 is the valuation of the those 2 business'

3) Antara and Promoter -  Antara is pretty small right now, and we dont know how to value it. There is Promoter being amazing valuation as well attached to it. So broadly we are paying 4300-2800-450= 1050 crores for it. 

2800+450 Crores is a definately the worse case valuation for this company i.e. about 110-115/Share. (we have excluded Antara and promoter Premium here). The Promoter buying at 154 is a positive for us. If in this correction max corrects, we may enter it with a 3-4 year horizon. 
 
 

Client

07, May 17

Query

Subject: Query About Strategy

Hi Amit,

Big Fan of you, getting bigger reading the query. Havnt seen as much clarity in Anyone else apart from you. Every word in your reports and monthly newsletter is worth a re-read.

My query today is the some query back you said that we invest in a pattern not a stock, could you please add some colour to it.

Admin Reply

Thank You Sir for motivating me, 

Patterns repeat in the financial markets. Only the names of the winning stocks change

High growth is rare, and financial markets reward it generously. We look at those companies that can grow at 25%+, Frankly, I’ve never been able to predict which stocks will go up tenfold, or which will go up fivefold or even 2 fold. I try to stick with them as long as the story’s intact.

And Atlast Never love anything that cannot love you back. The market doesn’t love anyone.- We always need to Manage our risk.Sooner or later, though , every trend ends, we need to know when to exit.

Client

30, Mar 17

Query

Subject: Inox Leisure

Hello Amit

What is your view on Inox Leisure for long term . Rational :19% share of multiplex in india covering south, north, east and west with approx 450 screens. Inox is ranked 2nd after PVR in the collection. it has good track recod of expanding by adding screens every month (2-3 month). They have target of reaching 800+ screens in coming years.There seems to be a valuation gap and might get re-rating . GST will be one of the key factor in future.

 

Admin Reply

Hi Sir, 

Sorry for the late reply, there has been massive value mitigation which is happening in Cinema space from unorganized single screen to multiplexes in last 1 decade. Today there are 4 main player PVR, INOX, Cineline, and Big Cinemas. These 4 command 70-80% market share. To your question on Inox, i believe Inox is rupa and Pvr is Jockey. PVR is way better than INOX and will always command a premium. The total market cap of cinema business is 1 Billion$ for PVR, 400 Million$ for Inox which is very small taking in context with the opportunity size.
Lets compare both these companies, End of 2016, Inox had 420 screeners wheras PVR had 550. Average Ticket Size of PVR is higher at 188 v/s 167 for Inox for 2016, though inox prices have gone up to 182 in december 2016. The Real Difference between the 2 companies is occupancy rate which is on average 33% for PVR whereas only 27% for INOX. if inox can scale up the occupancy rate margins can improve a lot as the average food and beverage revenue which is high operating margin product also increases sustaintailly. Avertisement revenue can be the game changer for INOX where in 2016 they did only 90 crores whereas PVR did 210 crores. Remember avertisement revenues straight hit the bottom line as there is no expense invovled.
I believe you can do a SIP on PVR and INOX both add more of every dips. Its one of the top 30 ideas at Stallion. 

Client

25, Mar 17

Query

Subject: Solar

Hi Amit

Do you have any solar companies in radar from small cap, microcap which could be a multibagger . So much attention on power especially solar in India for next few years.

 

Admin Reply

Hi Sir,

Renewable are a very risky space. I believe they are the airline industry of 19th Century where when though they will help the society and are wonderful, they wont be able to create an wealth. The competition is high, out of the top 20 solar companies in the world, 7 have already gone bankrupt in last 5 years including one of the largest solar company Sun Edison. However the opportunity size is large, but the technology change is rapid. So prices of solar energy/unit was 13/unit, 2 years back, now its about 5/unit. Coal and Thermal based are at 2.5-3/per unit. Solar is definately the future but i dont know which horse on ride on and if they will create wealth for shareholders. I will give solar a skip.

Client

24, Mar 17

Query

Subject: ujjivan financial

Hi Amit

Yesterday Finance minister Jaitley made it amply clear in parliament that any state wishes to give farm loan have to muster its own resources and central govt. wont help in any way. Will that have an impact on your decision to sell ujjivan?

Admin Reply

Hi Sir,

My understanding is that loan waiver will be the new normal for politicians till 2019. Politicians now know that loan waiver affects 60-70% of the population directly, its the greatest vote bank. Gujarat election i can with conviction say opposition parties will say we will do a loan waiver for you. Maharastra FM already said that they are considering it. Loan waiver is set to be the new normal for 2 years. Arun jailey comments means that central government wont do it, but politicians especially the congress can do anything for appeasement politics right now. i wasnt scared of demonetization because it was a one off, but this consistent disruption scares me. Consistent growth increases valuations, consistent disruption decreases valuation is what my understanding is. MFI as a business cannot take more than 3-4% NPA's for a long time. I like buying and holding companies where i am with the wave, rather the against it. I am not saying that ujjivan cannot pull this off, it can, but we bet on risk-reward, which is unfortunately not in favour of MFI's right now.

Client

23, Mar 17

Query

Subject: IPO: Shankara building

Dear Team ,

Any views on this IPO subscription? I have seen last query with Shankara,  In case any additional information pl let us know .

Thanks .

Regards ,

Ajay D .

Admin Reply

Hi Sir, 

Our analyst has done this for my understanding purpose. Apply for listing gain, grey market premium 85. You can have a look.

https://drive.google.com/file/d/0B_8gkaJnu6nLRVU0bkdSV2FidjA/view?usp=sharing

Client

18, Mar 17

Query

Subject: Bajaj FinServ and Reliance

Hello Amit

I have been trying to buy Bajaj FinServer from quite some time but everytime i try to catch it goes away. What is the range you suggest good to catch and keep in portfolio for 2 years plus.

second question is, i was a holding lot of Reliance stocks for many years since 2007 ( RCOM buy at 700+ , Rpower , Reliance industries etc..) , i have closed Reliance industries just recently with frustration ( held for 7-8 yrs in negative ). With Jio and other turn around  Reliance has started to move up, there was a positive comment from you in the query section during Feb end to one of the client.  what is your view on RElaince? is it really a turn around bet or it is just another noise and end up like RCOM, Rpower ,typical reliance of last 7 years.  Earlier there were days just one SBI, one Infosys, One Reliance could take the market in one diirection alone.

 

 

Admin Reply

Hi Sir,

Bajaj Finserv is a great story, with all 3 business' firing, i dont expect a very large dip anytime soon. Keep doing in SIP for next 6 months, and hold it for next 2-3 years.

Rcom on my charts is showing something big can happen here, there were many long term shorts, infact one of my friend who works for a london based hedge fund has been short since last 2 years, and lately has covered his shorts. The sence i am getting is that long term shorts are now very scared on shorting RCOM. There can a short squeeze here if merger happens with aircel. Rcom still remains a bad company, with tonnes of debt, i wouldnt buy it at gunpoint as well for long term. In short term a lot of things can happen in telecom, for 2017 i am bullish on telecom.

Short term - Bullish , Medium Term - Dont' Know ,Long Term - Bearish

Reliance - Reliance isnt RCOM. Reliance Jio has the best technology with 4G, whereas RCOM still has 2G (Scam Buying) and CDMA. Anil Ambani has been very much behind the curve in telecom. The only good asset Anil Ambani Owns is Reliance Capital. On Reliance we Remain bullish till 2020, i am confident that price war in telecom will create a 3 player Industry and all of these players will have above 15% ROE. Positive on Telecom

Client

17, Mar 17

Query

Subject: Query on Rupa

Dear Amit,

Following below news I saw for the Rupa

News:-
Rupa & Company Limited has informed the Exchange that Oban Fashions Private Limited, a Wholly-Owned Subsidiary of Rupa & Company Limited, has, 
on March 09, 2017, entered into a License Agreement with Fruit of the Loom, INC., a New York Corporation, a Wholly-Owned Subsidiary of Berkshire Hathaway
Company, whereby the said Wholly-Owned Subsidiary of Rupa & Company Limited has acquired the exclusive license from the said Fruit of the Loom, INC., 
to manufacture, distribute, advertise and sell innerwear and outerwear products for men, boys, women, girls and toddler in India, under their brand names 
and marks

it is good to buy this stock for long term?. please could you provide your view/suggestion on this. 

//Vishnu Joshi

Admin Reply

Hi Sir,

Fruit is not a big brand, infact i asked my friends in America after your query and they said a very small brand. I was more excited when RUPA tied up with FCUK. FCUK is a premium brand and has got a very high recall among young people. FCUK can definately compete with Tommy in the premium category. Jockey is the King of this market, and page industry still looks great to me, Page will do an EPS of about 230-240 this years, High ROE, Confirm 20% growth rate, valuations are a concern but on a dip to 12000-13000 its looks amazing. Page Industry will never trade cheap. 

Client

14, Mar 17

Query

Subject: New recommendations in Tea Sector

Sir,

With reference to another query, are you tracking tea related stocks and will you be recommending the same. Thanks and Regards

 

Admin Reply

Hi Sir,

I do like tea sector, and i am bullish on it. Tea prices are on fire due to short supply globally. I believe they can do a sugar repeat. I don't track every company individually but you can buy a backet of harrison, mcloed, jayshree tea etc. Overall i am bullish on it. Will we at Stallion Buy Tea stocks? No, we wont, we have a consistent investment philosophy of only buying compounding machines and we will only buy companies that fit our style because we have an edge there. we have already taken 1 tactical sector bet. We give tea a skip but it looks good to me.

http://www.indexmundi.com/commodities/?commodity=tea&months=240&currency=inr

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